These proposed rules seek to eliminate privacy and autonomy, which are core components to the virtual currency / finance tech industry. This sends a message that the US is not open for financial innovation, and encourages financial tech companies to seek incorporation elsewhere. Further, the methods proposed are ineffective for combating illicit activity such as money laundering. Instead, the proposed rule will generate an unnecessary amount of financial surveillance for ordinary citizens, which will become a honeypot of personal data for attackers.
If these proposed rules are enacted, many useful and innovative financial tools, both now and in the future, will not be available to US citizens. These tools enable all people, regardless of economic status, gender, or race, the ability to improve their financial situation. These tools offer better alternatives for individuals in the areas of micro-finance, savings accounts, and responsible investment. Without these tools, US citizens will be "left in the dark" compared to the rest of the world.
Beyond personal finance, businesses and governments can also greatly benefit from financial tools which these proposed rules seek to inhibit. Distributing funds to a large group, managing treasuries through voting, and providing micro-incentives to drive change are just some of the tools which the virtual currency industry can provide.
The proposed method of identification and reporting will not prevent or reduce any illicit activity. These methods may work in the current financial system, but will be entirely ineffective for virtual currencies- which are specifically designed to be stateless. The following elements to the proposed rules are specifically inapplicable for virtual currencies:
- “Require that banks and money service businesses (“MSBs”) identify and verify hosted wallet customers”.
Criminal organizations will continue to use self-hosted wallets, and can easily spoof KYC checks using stolen identities. Alternatively they can interact with MSBs outside the United States to achieve the same goals.
- “cause banks and MSBs to generate reports containing the transaction hash and identity of persons”
These reports will not be useful, as criminal organizations will avoid participating MSBs, or use stolen identities as mentioned above.
- “create a new prohibition on structuring applicable to virtual currency transactions”
Structuring prohibitions are inapplicable if the MSBs cannot produce any useful data.
I urge you to consider the negative impact these proposed rules will have on financial innovation, our citizens, and our government. I urge to you continue to seek industry professionals for help in determining the best methods to identify and catch criminal organizations using virtual currencies. As with any organization, the weakest point is the humans, not the type of currency or technology they employ. Please don’t stifle innovation in a new industry simply because of a few bad actors.